“WHAT DOES THIS HAVE TO DO WITH BANKING?”
That’s a question I get all the time.
It’s not often that bankers spend much time speaking and writing about prisons, policing and judicial sentencing, but I do.
My formal job description revolves around guiding the allocation investments that my bank manages on behalf of individuals and institutions. Since you can’t understand how to invest unless you understand the economy, my team spends a lot of time researching economic trends and sharing those insights with our customers. You can’t understand the economy without following the labor markets, and that’s where the discussion must include the impact of the justice system on our workforce.
Social ills have taken a terrible toll on our workforce, and chief among them, the vicious cycle of incarceration and recidivism that has deprived us of the talents of millions of potential workers. The magnitude of these societal problems has made them true economic challenges.
We are in the midst of an historic labor shortage. As of July, a record 10.9 million job openings remained unfilled. This limits the ability of businesses to serve their customers, to return to employment to pre-pandemic levels, and at the national level this is putting a dangerous brake on new economic growth. While aspects of the pandemic have made this situation worse, the underlying problem is long-lasting and truly formidable—demographic trends in the United States. We simply stopped having enough babies to provide the workers demanded by industry today. Even immigration is an incomplete answer—falling fertility like ours is a global phenomenon. The U.S. until recently had the benefit of the millennial generation, but Baby Boomers are expected to retire at the average rate of 10,000 people per day for the next decade and the minibaby boom of millennials that peaked in 1990 is already in the labor force.
The growth of a nation’s labor force, coupled with productivity gains, is a key ingredient to overall economic growth. Productivity can be augmented through automation and other technological advances, but has limitations and appears cyclical. Workforce growth tends to be the more important consideration over time. From this perspective, the U.S. is in big trouble. Our most recent census data showed that during the 2010s, the American population grew only 7.4 percent over the entire decade, the lowest growth since the Great Depression. In fact, since 2008, our fertility rate (expected births per woman) has not even been sufficient to replace our population. Most forecasters believe this dooms us to GDP growth that will average less than 2 percent. That pace is not only a far cry from the 3 to 4 percent averages of the ’80s and ’90s, but one whose natural variability means that we will regularly flirt with even slower periods that could easily tip into recessions.
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